The Ministry of Economy estimates that the impact of the war in Iran will reduce the growth of the Spanish economy by between one and four tenths this year and could push inflation to 3.1%. In global terms, four tenths of GDP would represent up to 7 billion in negative impact. The Government currently maintains its estimate that the economy will grow by 2.2% this year, but the First Vice President, Carlos Cuerpo, has announced that this forecast will be revised in the coming weeks.
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The Minister of Economy also stated this Tuesday, during the presentation of the Annual Progress Report, that the current “scenario of uncertainty makes it difficult to make forecasts.” For this reason, the Government has decided to maintain the growth forecasts it already made in November, before the start of the conflict in the Middle East. Cuerpo added that the duration of the war is the main factor of uncertainty in the economy.
Cuerpo warned that these impact forecasts are made at this moment, but he has not ruled out that “these bands [of negative impact] continue to expand.” Therefore, he added, the Government faces “a scenario of uncertainty that makes it difficult to make forecasts, to assign specific probabilities to the situation we will have in the coming months.”
The Government’s forecasts halve exactly the estimates of the war’s impact on the economy made by the Bank of Spain. It should be remembered that the supervisor estimated that Spain’s economic growth would be reduced by four to eight tenths this year.
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Regarding price growth, the Government estimates that the conflict holding the Strait of Hormuz in check will also imply an increase in inflation of more than one point. Thus, the forecast is that the CPI will stand at 3.1% this year. The Government approved a first package of aid with a fiscal cost exceeding 5 billion and does not rule out continuing to approve additional measures.
Despite these adverse scenarios, Cuerpo has assured that the Annual Progress Report, which will be sent to Brussels next Thursday, will state that “Spain continues to comply with the European framework.” Specifically, the First Vice President highlighted that in 2025 “the very dynamic evolution of our economy together with a responsible fiscal policy allow compliance with European fiscal rules.” Computable expenditure for the purpose of European fiscal rules grows by 4.5% in 2025, in line with the maximum allowed by the European Commission.
For Vice President Cuerpo, the Spanish economy is going through a “complex moment as a consequence of the energy shock derived from the war in Iran.” However, the Government’s economic official highlighted that Spain faces a better situation than other countries for different reasons. Firstly, due to lower energy prices compared to other countries. Secondly, due to job creation above the Eurozone average. And, finally, a deficit that the Government estimates it can reduce to 1.6% of GDP by year-end and a debt it expects to leave at 99.3% of GDP by the end of the current fiscal year.
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